Wednesday, April 15, 2009

February Monthly TIC Flows Negative Again…

The Treasury International Capital flows for February were NEGATIVE $97 billion. This follows a negative $146.8 billion flow in January. Since we run a negative trade deficit, we need this flow to at least equal our deficit in order to create sustainable debt financed trade.

While our trade deficit is falling due to a decrease in overseas trade, the TIC flow is falling much faster and that simply means that foreigners are not purchasing our debts. In the statement below note that net foreign PRIVATE capital flows were negative $106.3 billion, but that net foreign OFFICIAL flow was positive $9.3 billion. So, it is the private capital flow that is negative while foreign official flow is only slightly positive.

We have had negative months during the past year or so, but we have not been stringing negative months together – this two month string is large and it is significant. The overall TIC flow is definitely averaging down and the trend is very clear – we are not financing our trade. Ultimately this lowers demand for our debt and places pressure on Bernanke to perform more QE.

Below is the verbiage of the official release. Follow the link to see the table of flows:
Treasury International Capital (TIC) Data for February

Washington —The U.S. Department of the Treasury today released Treasury International Capital (TIC) data for February 2009. The next release, which will report on data for March 2009, is scheduled for May 15, 2009.

Net foreign purchases of long-term securities were $22.0 billion.

Net foreign purchases of long-term U.S. securities were $20.8 billion. Of this, net purchases by private foreign investors were $25.9 billion, and net purchases by foreign official institutions were negative $5.1 billion.

U.S. residents sold a net $1.2 billion of long-term foreign securities.

Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been $5.0 billion.

Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities increased $43.1 billion. Foreign holdings of Treasury bills increased $68.3 billion.

Banks’ own net dollar-denominated liabilities to foreign residents decreased $145.1 billion.

Monthly net TIC flows were negative $97.0 billion. Of this, net foreign private flows were negative $106.3 billion, and net foreign official flows were positive $9.3 billion
Complete data are available on the Treasury website at www.treas.gov/tic.

If you examine the tables you will find that purchases of our long term debt increased, but it was largely the short term securities that were negative. The media can evidently interpret that as being a positive as evidenced by this report by Econoday on Bloomberg . Their headline report states a POSITIVE number but that is only long-term securities, not net overall purchases:

In a mostly positive report, net foreign purchases of U.S. long-term securities rose $22.0 billion in February for a solid nearly $60 billion improvement from a net outflow in January of $36.8 billion (-$43.0 billion first reported). Foreign demand for long-term U.S. securities has been uneven since the September credit panic showing alternating increases and decreases. But a big underlying positive, despite all the concerns, is strong demand from the nation's two biggest customers China and Japan. Treasury holdings by China rose 0.6 percent in the month to $744.2 billion with Japan showing a sizable 4.3 percent increase to $661.9 billion. Net foreign purchases of Treasuries from all sources rose a very solid $21.6 billion with net foreign purchases of corporate & other bonds up $3.3 billion. Foreigners even showed demand for U.S. agency paper, up a net $1.1 billion to end a long run of selling. But foreigners were less interested in U.S. stocks during February, a component that shows a net outflow of $5.1 billion to end a long run of small increases. Given the big stock market gains in March, this component is likely to show improvement in next month's report.

Also showing improvement was foreign demand for short-term U.S. securities. Including short-term securities, net overall flows show an outflow of $97.0 billion, very heavy but still less severe than January's record low of $146.8 billion. Prior to January, safe-haven demand for short-term securities made for a run of gains. Foreign demand for short-term securities is less closely watched than demand for long-term securities, yet the outflow does suggest that the U.S. may have trouble funding its account deficit in what would be a negative for the dollar. There was no significant reaction to today's report which does not shake up the outlook for continued foreign buying of U.S. Treasuries.

This was a very upbeat article that completely downplayed the significance of the very large net negative flow. A good example of cherry picking data and talking only about the positive aspects.

Unfortunately, this data is already a couple of months behind and we do not have the transparency of timely information. Seeing our debt auctions go off with a bid to cover over 4 (short term auction where this report says there is weak foreign demand) makes me question who it is exactly that is doing all the bidding for our debt.

I have my suspicions. It obviously isn’t mom and pop. It obviously isn’t foreigners. Who does that leave? Well, it leaves Bernanke and it leaves the large investment houses/banks/whatever you call GS and JPM. I call them central banks and they are not just surrogates for the Fed, they are THE Fed.

The amount of money Bernanke has into QE to date is supposedly fairly minimal… definitely not enough to compensate for the $243.8 billion in net negative TIC flows of the last two reported months. My suspicion is that the games being played in the bond market are deeper than we are being told. I think we need to know and be able to see exactly who it is that is doing the bidding and the buying. The people of the United States deserve to know. We need to know because our collective financial futures are at RISK.

I’ll say it again… the central banks need to be dismantled, the money and central banking functions need to be returned to the people, and we need to separate corporations and their money from our government that is supposed to be of the People by the People, not of the corporation for the corporation. Put the horse back in front of the cart!